This comports with neither our sense of fairness, nor any theory of how we will compete in the global economy. That is why I am proposing something endorsed in the bipartisan Bowles-Simpson report, and by numerous leading elected officials of both parties: ending preferential treatment for capital-gains income. That unearned income is now taxed at a top rate of only 15 percent, while folks who actually make their income through hard work face a top rate of 35 percent. I am thrilled that my good friend Mitt Romney paid taxes of only about 15 percent on his sizable income—and I am sure it was all done properly. But frankly, Mitt, I am not sure why you don’t pay the same rate that Warren Buffet’s secretary pays. So in your honor, we are going to call this the Mitt rule: All income is taxed the same—up to a top rate of 35 percent.
Third: Deficits have ballooned over the past 30 years—look at this chart—primarily under the leadership of presidents Reagan and the two Bushes.
Those deficits ballooned not because of the stimulus spending that saved us from even greater economic disaster, but because of the tax cuts put in place by my predecessor and the wars he began. So, I have ended the Iraq war, will end the Afghanistan war by 2014, and also encourage you to repeal the tax cuts for those earning over 1 million dollars a year as soon as you can.
We also all know that the deficit going forward is almost exclusively a result of the explosion of health care costs. Medicare and Medicaid are the entitlement programs that will drive us bankrupt, not Social Security. Yet I am proud to tell you that because of the health reform act you passed last year, the rate of growth of health care costs is the lowest in many years. But that is not enough. We will do better by reforming Medicare and Medicaid even more and gradually raising the retirement age for Social Security. And as my good friends Newt Gingrich and Mitt Romney said when they actually served in government, we must use an individual mandate to broaden health care coverage.
Fourth and finally: National security. Osama Bin Laden is dead, and thanks to drones and covert operations, we have eliminated nearly the entire leadership of al-Qaida. Our gratitude to our armed forces and security agencies for their exemplary role in these tough missions knows no limits.
The state of our union is strong, and will only get stronger if we have the courage to do what is right—and not what those who would merely pander would have us do.
Thank you, and God bless the United States of America.